The sales and use tax rate in New Jersey will be reduced from 7% to 6.875% effective January 1, 2017. The rate will be reduced again to 6.625% beginning January 1, 2018.
Furthermore, the sales tax rate in designated Urban Enterprise Zones (UEZ) will be 3.4375, or 50% of the rate charged in other areas of the state. The UEZ sales tax rate is currently 3.5%.
Businesses need to prepared now for this change. Companies that collect and remit sales and use tax must ensure that their sales orders and point of sales (POS) systems reflect the correct tax rate. Businesses that pay sales and use tax to New Jersey are urged to review all invoices to verify that the correct tax rate was applied. Enterprises that self-assess sales and use tax in the Garden State, should make sure that the calculation is updated with the new rate.
Businesses should consider making capital expenditures or large transactions in New Jersey after the first of the year.
Provisions to transition to the reduced tax rate are outlined in the legislation which was enacted on October 14, 2016. For example:
- Tangible property purchased before January 1, 2017 and delivered afterwards would be taxed at 6.875%.
- If in the above example the tangible property is delivered after January 1, 2018, it should be taxed at 6.625%.
- Services sold from July 1, 2016 and December 31, 2016 which are delivered between January 1, 2017 and December 31, 2017 are taxed based on number of days in each period. Calculate the ratio of the number of days falling in each said period (July 1 to December 31, 2016 and January 1 to December 31, 2017) to the total number of days covered and apply the tax rate for that period based on the ratio.
- A service or maintenance agreement put into effect on or before December 31, 2016 for January 1 to December 31, 2017 should be tax at 7% if it is billed prior to January 1, 2017. Otherwise, the tax rate would be 6.875% if is billed before January 1, 2018.
More information is available from the New Jersey Department of Taxation. Please feel free to contact me at 610.828.1900 or Marty.McCarthy@MCC-CPAs.com with questions regarding your situation.
Disclaimer: This article is for informational purposes only and does not constitute professional advice. Information contained in this communication is not intended or written to be used as tax advice, and cannot be used by the recipient to avoid penalties that may be imposed under the Internal Revenue Code. We strongly advise you to seek professional assistance with respect to your specific issue(s).